Chapter+8+solutions

# Chapter+8+solutions - CHAPTER 8 BUDGETARY CONTROL AND...

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C HAPTER 8 B UDGETARY CONTROL AND VARIANCE ANALYSIS SOLUTIONS R EVIEW Q UESTIONS 8.1 Many organizations use a budget as a benchmark for evaluating actual performance. 8.2 A plan that represents the expected revenues, costs, and profit corresponding to the expected sales volume as of the beginning of the period. 8.3 The difference between an actual result and a budgeted amount is called a variance. 8.4 A favorable variance means that performance exceeded expectations – actual revenue exceeded budgeted revenue or actual cost was less than budgeted cost. An unfavorable variance means that performance fell short of expectations – actual revenue was less than budgeted revenue or actual cost exceeded budgeted cost. 8.5 The total profit variance equals actual profit less master budget profit. 8.6 The sales volume variance and the flexible budget variance. 8.7 The budget at the actual level of sales. 8.8 The difference in profit between the flexible and master budgets. 8.9 The difference in profit between the actual results and the flexible budget. It is comprised of the sales price variance, the fixed cost variance, and the variable cost variance. 8.10 The difference between actual revenues and flexible budget revenues. 8.11 The difference between budgeted and actual fixed costs. 8.12 A quantity variance and a price variance. 8.13 The difference between the “as if” budget and actual results for an input. 8.14 The difference between the flexible budget and the “as if” budget for an input. 8.15 It provides management with a summary that bridges actual and expected performance. It helps pinpoint which areas to investigate in order to take appropriate corrective actions. 8.16 Variances could arise (1) during the normal course of operations, (2) a more permanent change in the firm’s operating environment, and (3) budgets/standards are either too tight or too loose. Balakrishnan, Managerial Accounting 1e FOR INSTRUCTOR USE ONLY

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8.17 (1) Investigate all significant variances, whether favorable or unfavorable, (2) Examine trends, and (3) Consider the total picture. 8.18 (1) Timeliness, and (2) Specificity. D ISCUSSION QUESTIONS 8.19 Think of a budget you may have in any given month for eating out, for entertainment -- playing video games in the local arcade or going to the movies, and for clothing. At the end of the month, you may realize that you have spent a lot more on video games that you had budgeted because you had gotten addicted to a new game! 8.20 Both arguments are valid. Tight but achievable budgets are a way to motivate people in organization to become more careful and efficient. However, tight budgets could be very demotivating if they are unachievable, and could lead to a loss in employee morale. Tight budgets are especially effective when the tasks involved are specific, well-defined, and routine. Loose budgets are more suitable when tasks are not well-specified and outcomes are uncertain. A good example is research and development efforts in, say,
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Chapter+8+solutions - CHAPTER 8 BUDGETARY CONTROL AND...

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